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An organizational structure is the hierarchy by which a company outlines its management and communications. Disadvantages of organizational structure include lopsided management lines, increased bureaucracy, slowed communications, and increased inflexibility. These disadvantages may not always persist in an organization. The type of organizational structure — product, function, or matrix — may also have only one of these potential disadvantages. Knowing the potential disadvantages helps a company overcome these problems to improve its operations.
Most large companies have several different managers who oversee the many operations needed to produce goods and services. Lopsided management lines occur when one manager oversees many more direct reports than others. A company may discover this when it first outlines its organizational structure. The disadvantages of organizational structure here include a manager who may not be effective directing his or her division. In some cases, more than one manager or position may have a lopsided portion in its organizational structure.
Two broad types of organizational typically exist: tall and flat. Tall structures have more managers in their organizational structure when compared to flat structures. The disadvantages here include more bureaucracy. More management positions typically lead to longer wait times for major decisions. Micromanagement may also be present here as managers have fewer people to oversee and direct.
Formal organizational structures often have strict communication lines. For example, a company that has a geographic organizational structure may take longer to communicate issues with other departments. While technology helps shorten this lag time in some ways, it does not completely prevent slower communications. Other problems include the delivery of goods from one place to another. Specific points often exist for delivery and receipt, making a formal process inherent in the organization.
Inflexible business operations mean a company has difficulty changing to meet current needs. For example, a company that has a strict, formal structure may be unable to move quickly to adjust product types based on consumer demand. The obvious issues here are the potential for lost profits and higher operational costs. Inflexibility can even potentially lead to a company’s demise. New, less-structured organizations may be fast and flexible to meet new market demands, pushing out older and stodgier companies.
Small businesses often have fewer problems in terms of organizational structure. As they grow, however, they must prepare and educate themselves on the potential disadvantages of organizational structure. Researching each type and their potential flaws can help a business find ways to limit or mitigate these disadvantages.
One of the most obvious but also consequential disadvantages is that by having a structure, that prevents you from having a different structure. The very act of committing to one closes you off to all the benefits of another.
I know from having worked in several large companies that one of the most difficult things to do is to carry out a widespread change of your organizational structure. It shakes everything up and tends to put everyone off. Sometimes it works, often times it doesn't.